Malaysia should look at labor market demands more closely when determining foreign worker inflows as its current approval system doesn’t sufficiently reflect the needs of industries, the World Bank said.

The government must improve its existing evidence-based system for identifying labor shortages in the economy and change its levy structure, the World Bank said in a report released in Kuala Lumpur Friday. The use of a combination of quotas and levies that are "semi-static" and seldom change can’t keep up with varying market conditions, it said.

“The current approval of immigrant labor does not reflect labor shortages or labor market demands,” the bank said. "Phasing out static quotas by restructuring the levy system to serve as a pricing mechanism that controls migrant inflows" will keep immigration aligned with evolving genuine labor market needs, it proposed.

A nimble structure that channels workers more efficiently to industries that require them may keep wage bills contained amid complaints from businesses of rising costs. Manufacturers have demanded structural changes to policies on human resource and foreign workers that will provide clarity and consistency for the sector as Prime Minister Najib Razak’s government tries to reduce reliance on overseas labor.

More expensive

The government will announce measures early next year that will make it tougher and more expensive to hire overseas workers, Paul Low, minister in the Prime Minister’s Department, said Friday. Malaysia will raise minimum wages further from July 2016, Najib said in October. Manufacturers are among those who are urging the government to consider delaying the increase.

The country’s economic immigration management system is fragmented, with more than 10 different ministries, and departments within those ministries, directly engaged in the approval of immigrant labor, the World Bank said. There are about 2.1 million registered foreign workers and probably more than 1 million undocumented immigrants in Malaysia, it estimates.

Malaysia plans to restructure the system and centralize the processing of foreign worker permits under the human resources ministry, Low said. Other changes being considered include stiffer penalties when companies are found using undocumented workers and holding employers responsible for providing proper welfare for the foreigners, Low said